Update Middleby (MIDD)

Given the mood of the market right now, Middleby’s (MIDD) May 12 earnings report was a perfect storm of bad news. The company missed Wall Street earnings estimates for the first quarter by 8 cents a share and revenue fell by 11.5% from the first quarter of 2009.

And nobody wanted to hear a word of explanation. The stock fell on the news by 6.4% on May 13.

In its conference call the company explained the revenue decline. The first quarter of 2009 saw an unusually large lump order from a customer rushing to roll out a new menu. Subtract that lump and revenue actually climbed by 8.6% year to year. Nobody cared.

The quarter was difficult, said CEO Selim Bassoul, but the company started to see improvement in sales and orders. The Food Processing Group saw a big increase in sales as orders deferred in 2009 were finally placed with Middleby as customers increased their capital spending plans for 2010. Order trends for the Commercial Foodservice Group turned positive in the second half of the quarter. Nobody cared.

Why did nobody care?

That’s what happens when a stock climbs by 49% from the February 8 low to the May 12, the day of the earnings announcement. A lot of good news—like improving sales—is baked into the stock and all investors want to hear is the company say that things are even better than they expected.

And that’s what investors didn’t hear in the report or the conference call. Instead the headline takeaway by Reuters was the company’s worry over rising steel costs. The company said it thought it could address the problem by gains in efficiency in its supply chain. But (ready?) Nobody cared.

I’ve been impressed that Middleby has just kept on with its strategy of growing market share in a fragmented sector even during the worst of the Great Recession. On May 4, for example, Middleby acquired PerfectFry, an Alberta maker of ventless countertop frying units from the commercial foodservice industry with about $4 million in annual sales. I’m also impressed with the improvements in operating margins and on the balance sheet.

Given the stock’s huge run off the February 8 bottom, I don’t think the sell off on earnings is especially troubling. I think this is another stock, like Jubak’s Picks Cummins (CMI), Intel (INTC), and Cisco Systems (CSCO), that is set to benefit as customers put in orders to make up for spending that they deferred during the recession. (For more on why you want to own stocks like these now see my post http://jubakpicks.com/2010/04/20/go-for-the-growth-and-where-to-find-it-at-a-reasonable-price/ )

I’m raising my target price just a tad to $67 by November 2010 from the previous $65 by November.

Full disclosure: I own shares of Cisco Systems, Cummins, and Middleby in my personal portfolio.